Today’s IT organizations need to not only build a product right; they need to build the right product to stay competitive. A wise first step for many software development companies is to get a handle on the “bucket problem,” learn from it and use that information to better plan and manage application and project portfolios.

The “bucket problem” is how analyst Phil Murphy of Forrester Research Inc. in Cambridge, Mass., describes the accumulation of applications that represents a majority of IT spending—apps that in many cases may no longer be useful, are expensive to maintain or are unwieldy or outdated. “For the last 30-plus years we’ve been throwing stuff into the bucket and moving on to the next project. What’s in it represents 80% to 90% of IT spend; some is appropriate, some is wholly inappropriate, and there’s no way to tell the difference,” Murphy said. “Any company that’s been in business for 10 years and isn’t a mom and pop has a bucket problem.”

Application portfolio management (APM) can help organizations get a handle on what’s in that bucket and also help them determine “where there are big items consuming resources that would otherwise be working on [developing] new stuff, like mobile and cloud,” Murphy said. APM, he said, has one goal: to make resource consumption transparent and let the business decide what the priorities are. “The big factor is, what’s the health of my existing application base—source code, data, the hardware it runs on, everything? Is it a price point that makes sense for each business function?”

Nicholas Spanos, principal consultant at Allentown, Pa., IT services company Computer Aid Inc., and a Lean IT blogger, said many organizations today have no concept of APM. “What they do is have a whole bunch of applications, and they will operate and support them until someone tells them they shouldn’t. In many cases they don’t even know if anyone is using them.”

Mike Young at Pinnacle Management Systems Inc. in Irving, Texas, agreed. One problem is organizations don’t know which applications overlap, he explained. Second, they don’t know how to tie return on investment (ROI) to specific applications. “You own some and I own some; my compensation is tied to my application; yours is tied to your application.” And chief information officers are often not the right people to make portfolio decisions “because they don’t own the revenue stream,” he added.

Young said organizations need to know what they’re spending money on. “It’s usually straightforward to understand hardware-software purchases; it’s more difficult to tie effort and cost of effort back to that,” he said. “The challenge [for large organizations] is if you have thousands of developers spread over the world, what are they spending time on? What are the support people spending time on? It sounds simplistic, but it comes down to tracking time and tying that back into what that costs.”

There are APM tools available today to help organizations do just that, but Forrester’s Murphy said few solve the problem entirely. “Some PPM [project portfolio management] tools claim to do APM,” he said, adding that utilizing their resource and demand management capabilities is useful. “But most tools simply trick the tool into pretending an application is a project. Projects have short lifecycles measured in months or a year or two; applications can live 30 to 40 years.”

Murphy said there are also application-mining products that claim to do APM. “They parse the source code and develop metrics about how big or how complex the application is. Theoretically, if you can carry that over to the SCM [supply chain management] system you could trap [the information].”

He added that some enterprise architecture metadata modeling tools can serve a purpose for APM as well, “but nobody has pulled it all together yet.”

Pinnacle’s Young advises clients that the first task is to rationalize the strategic initiatives. “It doesn’t do a lot of good to do APM or asset management unless you can tie it to revenue, strategic initiatives and future plans. This is where a lot of people struggle.”

Then do an inventory, he said, and include everyone involved in the project. For example, if there are billing applications, talk with marketing and financial people. Then examine where there is overlap.

After inventory, Young said to start making hard decisions about what to retire. “At that time, you need the costs available so you can determine where the money is going. At that point, organizations typically will realize they have to make a change in the way they’re accounting for what they spend.”

Cleaning house and streamlining costs isn’t the only benefit of APM. It helps with new development as well. Jon Furner, president of ResultsPositive, a project and technology management consulting firm in Chandler, Ariz., said he’s seeing a lot of need in application rationalization, application inventory and application transformation.

The No. 2 driver of APM is rolling out new applications, he said. “Some leading companies are using it in conjunction or in parallel with the annual planning process, assessing the application portfolio, conducting surveys with business and application owners and getting feedback on how well [the applications] are working for the business needs. It’s an opportunity to create new products or consolidate and retire outdated applications,” Furner said.

Computer Aid’s Spanos said if IT wields APM confidently, it can effect real change. By managing the application portfolio proactively, IT can articulate to the business units what they are spending to support and maintain an application, if there is risk or limitations posed by outdated technology and why development of a new feature or function or the implementation of a new package would provide better ROI and alignment with strategic initiatives.

For now, though, it’s early days for APM, Spanos said, and IT has yet to take ownership of it. “There’s a tendency for IT to do what business asks [them] to do,” he said. “The problem with that approach is business is not expert in technology, so business doesn’t know what the new capabilities of technology are or what would be a much easier way to automate the manual business process they have.”

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